We are often faced with dealing with a claim administrator who services a self-insured plan. A recently published case highlights the issues that arise and is useful precedent for the cases we handle for our New Jersey disability clients. In this case, May v. AT&T, AT&T retained Sedgwick to perform the claims handling on its behalf and even made the decisions of which disability claims to pay. At&T defended its role in the claim, since it delegated all claims making decisions to Sedgwick, it believed would serve as a buffer from exposure for bad faith decision making. Many courts have held that a plan cannot be liable for arbitrary decision making that is influenced by the money saved by denying claims, if a separate claims administrator makes all of the decisions.
Here, however, the court saw through this house of cards. Sedgwick was the ERISA claims fiduciary. The court held that the actions of Sedgwick showed that Sedgwick demonstrated more loyalty to the funding entity which had employed it, than to its cestui que trust during the administrative process. The court noted “Sedgwick jealously guarded its client’s money, ” commenting, “This is one of the most bothersome aspects not only of this case, but of ERISA benefits cases in general.” Ms. May was faced with the unenviable task of appealing to Sedgwick each denial. “She hit a stone wall each time.”

The Court was particularly interested in considering whether it would be appropriate to remand the case to Sedgwick to reconsider the ongoing claim. They determined, ” if Sedgwick were ordered to take another look at the claims in light of favorable SSA decision Sedgwick could and probably would treat the SSA findings as simply something else to discount in comparison with its “independent, non-examining medical experts.” Assuming the court had the power to remand the case to the Sedgwick Briar Patch, that Briar Patch is one in which Sedgwick is accustomed to navigate.”

Commenting on the conflict of interest, “If the Supreme Court’s Metlife v. Glenn made nothing else clear, it made it absolutely clear that a conflict of interest always exists under circumstances like these and that the conflict is a substantial factor that must be considered in evaluating, even if the denial was arbitrary and capricious. Although, Sedgwick may argue that it itself is not obligated to pay benefits that the plan may be obligated to pay to Ms. May, it is clear that its loyalty is to the owner of the pocket from which those benefits would be drawn. If any proof were needed of the fact that for ERISA purposes, Sedgwick is the alter-ego of the funding entity, it is the fact that the decision maker and the payer are represented by the same lawyers. They are all in this together”.

The court found Ms. May credible and stated, “We find that she suffered from the debilitating pain she sought to have corrected by surgery. Her claims were of such small amounts that they cannot suggest a motive for fraud or misrepresentation. No sane person would submit to two dangerous surgeries just to obtain small amounts of disability benefits”.

We at Bonny G. Rafel LLC recently won a Judgment against Liberty Mutual, the claim administrator and the employer, Santander Holdings USA, for wrongfully denying a STD and LTD claim and putting its own financial interests ahead of those of its employee.